The stock market may face significant volatility if the 2024 Presidential election results are not swiftly determined, Goldman Sachs has cautioned.
What Happened: The investment bank issued a note on Friday, highlighting the potential risk of a prolonged election outcome, reported Business Insider. The note pointed out that the closeness of the race between President Joe Biden and former President Donald Trump could lead to a prolonged period of uncertainty, impacting the stock market.
The bank also noted that the candidates' differing economic and fiscal policies could result in varying investment strategies across Wall Street. If the election outcome remains uncertain after the Nov. 5 election date, this could lead to a surge in market volatility as investors wait to determine which stocks to invest in.
"In 23 states - including the swing states of Arizona, Michigan, and Pennsylvania - provisions exist for automatic or mandatory recounts if the margin between the top two candidates is within certain parameters, typically 0.5%," Goldman Sachs' strategist David Kostin explained.
Meanwhile, in 41 states, a losing candidate can request a recount if they believe they were harmed due to fraud or errors in vote counting.
Considering the similarities to the 2020 election with the same candidates and tight polls, it's reasonable to expect that the winner of the upcoming election won't be decided on election night but rather through a prolonged process.
This presents a significant risk for investors. According to Goldman Sachs, the timing of the election outcome, rather than the actual winner, is the crucial factor to watch.
Why It Matters: This warning from Goldman Sachs aligns with previous predictions about the impact of the 2024 presidential election on the stock market. UBS had also forecasted significant market implications due to the stark policy differences between the two candidates, suggesting that the next eight months leading up to the election could be disruptive for investors.
Moreover, the potential for a drawn-out election could further exacerbate the traditionally volatile period in the stock market. As we enter May, the old Wall Street adage "sell in May and go away" is finding its way back into the conversations of traders and investors. The strategy suggests that the stock market tends to underperform from May through October compared to the November through April period.
On the other hand, the election year could also present opportunities for investors. History shows that presidential election years have historically been positive for the stock market, with the S&P 500 gaining an average of 6.5% during these years.
Additionally, the election is expected to have a significant impact on the IPO market. The resurgence of initial public offerings is expected to experience a brief slowdown around the election, with some IPOs being pushed to late 2024 or even into 2025.